We survived 2022, but will 2023 be better? One could hope but some of the same economic issues still haunt us. Therefore, volatile financial markets may continue for a bit.
Many investors may recall a mantra, “As January goes, so goes the year.” This is referring to how well the stock market performs the first month of the year and could be an indicator for the entire year’s returns. Bill Greiner, CFA, chief economist for Mariner Wealth Advisors, states this is correct 72% of the time. That is good news since January was a positive month for the S&P 500.
Many issues still linger though, such as an increasing probability of a recession. One reason is the Federal Reserve Board’s indication to continue increasing interest rates to help curb inflation. We may also see corporate earnings begin to wane after holding up well last year. This could be due to higher costs of borrowing along with the labor shortage.
Consumers are tired. Tired of winter, tired of economic uncertainty and inflation. Business owners are drained from trying to find workers, rising lease rates and higher cost of goods. Investors are weary of stock market declines and interest rate increases. The war in Ukraine continues. COVID seems to have reappeared. This is when people are most pessimistic. And that creates opportunity.
While everyone is crying in their soup, you could be taking advantage of bad news that puts your favorite stocks or sectors on sale. Greiner states that if there is a recession in 2023, “It will probably be a light, quick recession.” Therefore, the rally days on the stock market indicate investors may be looking past a brief recession and trying to lock in some gains in the future.
Recessions are healthy for the economy, and they are what gives us the business cycle. Hitting the reset button to reprice goods and services and trim off excesses that are not sustainable is a good thing.
There are other possibilities if there is not a recession. We could remain in the stagflation from last year, which could actually be worse, in my opinion. Stagflation is typically high inflation and low growth. This could drag out the effects of rising interest rates causing the Fed to need to fight inflation even longer.
The Fed could pull off a soft landing, where they pause interest rate hikes just in time to get the perfect combination of curbing inflation without halting too much growth. Most economists put this scenario at a very low probability.
Prepare for some continued economic and market fluctuations especially in the first half of the year while the Fed is expected to continue hiking rates. If inflation continues to roll over, then we could see interest rates plateau and growth start to return.
We’ll see a year from now how 2023 turns out: stagnant, recessed or the perfect landing.
Patricia Kummer has been a certified financial planner professional and a fiduciary for over 35 years and is managing director for Mariner Wealth Advisors.